Carbon prices? Try electricity prices

Garnaut says that the resources boom will drive up the cost of power much more than any carbon tax.

Credit: sxc.hu

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The focus on the carbon price has now shifted to electricity bills. Rising electricity prices have become the single most important factor influencing policy in the carbon pricing debate.

There are three questions: What do we do about those prices that just keep going up? Should power companies get compensation for the carbon tax? And, should we shutter the worst greenhouse gas emitting plants during the winter when demand is low?

In his latest electricity report, the Government’s climate change advisor Ross Garnaut dismisses any compensation for power companies under the government’s proposed carbon pricing scheme.

In his first review Garnaut said there should be none, but the Rudd government buckled in to the power companies. It offered them a neat $7.3 billion over 10 years.

This time around, Garnaut suggests establishing an Energy Security Council to ease the transition to a low carbon market. It would ensure there are no blackouts and it would help the Government “respond to financial and contract market instability and contagion risks”.

Garnaut also makes the point that the resources boom will drive up the cost of power much more than any carbon tax. Sure, a carbon price would push power costs up even further, but demand for commodities such as coal and natural gas would have a bigger impact on households over many years to come. “Of these likely drivers of future price increases, households will only be compensated for the introduction of a carbon price,’’ Garnaut says.

In other words, electricity prices are set to soar in the next few years with or without a carbon tax. Bills would go even higher unless the Government imposed tougher regulation on the electricity sector, Garnaut says.

In another radical recommendation, he says Australia should limit the use of Australia’s dirtiest coal–burning plants to peak demand, in effect shuttering carbon intensive coal fired plants in Victoria at Hazelwood and Yallourn and limiting their use to when demand is at its peak in summer. He says “there are no known technical reasons which would prevent the facilities operating in non-baseload capacity”. That could see them being shut of a number of months during the year.

This is critical because electricity prices have climbed significantly over the last few years. Origin Energy chief executive Grant King has warned that energy prices will triple over the next 10 years. That’s regardless of whether there is a carbon price or not.

Giles Parkinson in Climate Spectator looks at how electricity companies might be doing the same thing as banks, gouging customers with price increases well beyond what is required.

With the Opposition claiming the carbon price will push up the cost of living by around $2000 a year, these arguments will shape the carbon pricing debate. The reality however is that the latest figures show that electricity prices are rising right around the world, without a carbon price.

Putting a price on how much carbon dioxide we spew into the atmosphere helps change behavior and forces people to become more energy efficient. It will also force electricity generators to switch from dirty brown coal in southeastern Australia to cleaner gas to reduce greenhouse emissions. It’s a way of controlling those price increases happening regardless of carbon pricing.